Changes to Transition Pay in 2021: Here is What You Need to Know

We saw some significant changes to Dutch employment and dismissal law in 2020, and as we head into the new year once again, it is in the best interest of temporary and permanent employees in the Netherlands to educate themselves about the changes that 2021 brings to transition pay and other key employment law issues. If you have questions about what kind of transition compensation you may be entitled to upon being dismissed from your job in the Netherlands, or if you are concerned about what will happen to your job after a period of long-term illness, our experienced Dutch employment law attorneys can help. Our legal team is experienced in all matters related to Dutch labor law and fair compensation and we can ensure that you understand your rights under the latest laws in 2021.

Labor Market in Balance Act

Dutch employment law offers considerable protections to employees in the Netherlands with respect to dismissal, termination of employment, transition pay and other key aspects of employment, but this was not always the case. In fact, dismissal law and compensation for employees has been the subject of significant debate in the Netherlands for many years, and it was only in 2020 that Dutch employee protections were effectively overhauled, with the entry into force of the Labor Market in Balance Act (Wet arbeidsmarkt in balans in Dutch, known as the WAB). This new law is the latest addition to the Dutch Work and Security Act (Wet werk en zekerheid in Dutch, known as the WWZ) of 2015. The WAB introduced a package of measures related to transition payments, flexible employment, dismissal requirements, job security and other important employment law matters in the Netherlands.

Changes in Transition Compensation

One of the most significant changes introduced by the WAB in 2020 was the calculation of transition pay (transitievergoeding in Dutch), a form of compensation the employer pays to the employee for costs related to involuntary unemployment, like training and outplacement. This includes cases where an employee’s temporary contract is not extended or renewed. Before this new law was enacted, Dutch employees were entitled to one-sixth of their monthly salary for each six-month period they worked during their first 10 years of service. After 10 years, employees were entitled to one-quarter of their monthly salary for each six-month period they worked.

Under the WAB, the proper transition payment for Dutch employees is now equal to one-third of the employee’s monthly salary per calendar year of employment, regardless of the total duration of employment. Furthermore, employees in the Netherlands are now entitled to transition pay immediately from the first day of employment, as well as during any probationary period, rather than after 24 months (two years) of employment.

This new method of calculation for transition pay or severance pay in the Netherlands will remain the same in 2021, with one exception. In 2020, the maximum amount of transition compensation a Dutch employee could collect upon termination of their employment contract was €83,000 gross, or a maximum of one year’s salary, if the employee’s salary was greater than €83,000. The maximum compensation is set yearly and will increase in 2021.

One of the most important things for Dutch employees to understand is that if the employer does not offer transition pay, the employee must request it within three months of the employment contract’s termination. If the employer pays the transition payment later than one month after the employment contract is terminated, statutory interest will apply.

Illness and Refusal to Work

In the midst of the ongoing coronavirus pandemic, employees in the Netherlands likely have pressing questions about their sick leave entitlements, their right to refuse work and how doing so could affect their salary payments and transition compensation.

Sick Leave Entitlements

Dutch employment law has strict regulations in place that generally prevent employers from terminating the employment contracts of employees during a sick-leave period without cause. If an employee becomes ill and is not able to work, the employer must continue paying the employee’s salary during the first two years of the illness. Furthermore, both the employee and employer have certain duties to uphold during this time with regard to the employee’s return to work. The employer is obligated to take every reasonable measure to ensure that the employee can resume work as soon as possible, in the same or a similar position within the company or in a suitable position outside of the company. For his part, the employee is required to comply with the employer’s rehabilitation and reintegration efforts and make every attempt to return to work as quickly as possible.

After two years of illness, if the employee is still unable to return to work, employers can ask the Employee Insurance Agency (Uitvoeringsinstituut Werknemersverzekeringen in Dutch, or UWV) for permission to terminate the employment contract on the basis of long-term occupational disability. If the employer takes this route, the employee can collect transition compensation for his total duration of employment.   

Refusing Work

Employees must take note of the fact that there is a big difference between being unable to work due to an illness or disability and simply refusing to work. In late 2020, the District Court of Rotterdam in the Netherlands reaffirmed the decision that if an employee is able to work but refuses to do so without having a suitable excuse for the refusal, the employer can stop paying the employee’s salary. Understanding this “no work, no pay” position is particularly important now during the COVID-19 pandemic, when concerns about the health and safety of workers and their families are at an all-time high. Dutch employment law is clear on this point though. If it is determined by a medical professional that you are at least partially able to carry out suitable work despite an illness, and you refuse to do so without a valid reason, you could risk losing your salary payments or possibly even jeopardize your right to transition compensation.

Other Employment Law Changes to Consider in 2021

State Pension Age

The state pension entitlement age in the Netherlands was increased to 66 years and four months for 2019 and 2020 and will remain at that level for all of 2021. In 2022 and 2023, the state pension age will increase by three months each, to 66 years and seven months and 66 years and ten months, until 2024, when it reaches 67 years. The state pension age was meant to be increased on the basis of life expectancy beginning in 2025, but this proposed increase has been pushed back to 2026.

Pension Plans for Payrollers

The WAB implemented new protections for those working for payroll firms (payroll staff or “payrollers”), including the right to the same employment conditions as workers directly employed by the company who are performing the same work for the same employer. Effective January 1, 2021, payroll staff must also be provided an “adequate pension scheme” that is equal or comparable to the pension scheme provided to the employed staff.  

Grounds for Dismissal

As we mentioned earlier, Dutch employment law is extremely protective of employees, and under the WAB, employers in the Netherlands are prohibited from terminating an employee’s employment contract without proper cause (known as grounds for dismissal). As of April 1, 2020, if an employee is dismissed on the grounds of long-term disability following two years of illness and transition compensation is paid, the employer can apply to the UWV for reimbursement of the transition payment.

There are some new changes to this law taking effect this year. As of January 1, 2021, in the event of a business closure by the employer for reasons of illness or pension, the business can now apply for reimbursement of the transition compensation paid to employees. This only applies to small business employers with fewer than 25 employees who owe a transition payment incurred during the six-month period prior to obtaining consent from the UWV or terminating an employment contract. In order to qualify for this compensation, the employer must satisfy a number of narrowly “circumscribed conditions.”

It is important to note that if the employee terminates the employment contract, the employer may not be required to pay transition compensation to the employee, unless the reason for the termination is seriously culpable acts or omissions on the part of the employer.

Know Your Employment Rights

The laws surrounding dismissal law, sick leave requirements, employment contracts and transition pay in the Netherlands can be confusing, and with adjustments being made to these laws every year, it can be difficult to keep up with the latest changes. To ensure that you receive the transition compensation you are entitled to after being involuntarily dismissed from employment on your employer’s initiative, it is a good idea to enlist the help of a reputable Dutch employment law attorney who knows the law and how it applies to your specific situation. With a lawyer on your side who specializes in transition payments and other matters pertaining to employment contracts and labor law in the Netherlands, you can feel confident that your rights are protected and your best interests are represented.